Trump’s dream of cheap oil may come true

DNA (Daily News & Analysis) Mumbai Edition - - FRONT PAGE - Ju­lian Lee —Bloomberg

As win­ter keeps its grip on the north­ern hemi­sphere it is the oil bulls, not the bears, who have gone into hi­ber­na­tion. The price rally that greeted the new year has fiz­zled out as re­newed con­cerns about de­mand growth out­weigh the tight­en­ing of oil sup­ply through Opec cuts and US sanc­tions.

Saudi Ara­bia had al­ready started to de­liver on its promised out­put re­duc­tions in De­cem­ber and went be­yond what was pledged in Jan­uary. US pro­duc­tion growth has stalled — for now — and Pres­i­dent Don­ald Trump’s sanc­tions on oil flows from a sec­ond Opec pro­ducer (Venezuela joins Iran on the naughty step) will cut sup­plies even fur­ther.

The flow of Opec crude to the US fell to the low­est in five years in Jan­uary, ac­cord­ing to data from the car­go­track­ing and in­tel­li­gence com­pany Kpler. Bloomberg’s own tanker track­ing shows the flow of crude from the Per­sian Gulf to the US last month was 36% lower than in De­cem­ber and al­most 60% lower than in Au­gust.

Those flows mat­ter, not be­cause the Amer­i­cans are Opec’s big­gest cus­tomer — they aren’t — but be­cause the US mar­ket is still the most trans­par­ent. Of­fi­cial weekly data on the coun­try’s oil pro­duc­tion, con­sump­tion, re­fin­ing, stock­piles and trade flows are watched keenly by traders and pol­i­cy­mak­ers. Those in­di­ca­tors drive sen­ti­ment.

The prob­lem for bulls is that while oil sup­ply has clearly tight­ened, de­mand is start­ing to look weaker again.

Hopes of a break­through in Us-china trade talks were knocked back af­ter Trump said he wouldn’t meet Pres­i­dent Xi Jinping be­fore a March 1 dead­line to avert higher tar­iffs on Chi­nese goods.

Mean­while, the Euro­pean Com­mis­sion has slashed growth fore­casts for the euro area’s big economies and warned that Brexit and the slow­down in China threaten to make things even worse. That might start to weigh on oil de­mand fore­casts, which have re­mained rel­a­tively ro­bust.

Last month, the In­ter­na­tional En­ergy Agency cited “av­er­age prices be­ing be­low year-ago lev­els” as the main rea­son it saw de­mand growth hold­ing up. We’ll have to wait for its next fore­cast on Wed­nes­day. Oil prices have been flat for a month, but the weak­en­ing econ­omy is neg­a­tive.

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